Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income taxes

	For the three months ended September 30				For the nine months ended September 30
(in millions of Canadian dollars)	2022		2021		2022		2021
Current income tax expense	$	158	$	39	$	375	$	427
Deferred income tax expense	38		130		151		190
Income tax expense	$	196	$	169	$	526	$	617

During the three months ended September 30, 2022, legislation was enacted to decrease the Iowa state corporate income tax rate. As a result of this change, the Company recorded a deferred tax recovery of $12 million related to the revaluation of deferred income tax balances as at January 1, 2022.

The effective tax rates including discrete items for the three and nine months ended September 30, 2022 were 18.01% and 18.97%, respectively, compared to 26.36% and 21.00%, respectively for the same periods of 2021.

For the three months ended September 30, 2022, the effective tax rate was 24.25%, excluding the discrete items of the equity earnings of Kansas City Southern ("KCS") of $221 million, acquisition-related costs incurred by CP of $18 million, the deferred tax recovery of $12 million described above, and an outside basis deferred tax recovery of $9 million arising from the difference between the carrying amount of CP's investment in KCS for financial reporting and the underlying tax basis of this investment.

For the three months ended September 30, 2021, the effective tax rate was 24.60%, excluding the discrete items of acquisition-related costs incurred by CP of $98 million, and a foreign exchange ("FX") loss of $46 million on debt and lease liabilities.

For the nine months ended September 30, 2022, the effective tax rate was 24.25%, excluding the discrete items of the equity earnings of KCS of $627 million, acquisition-related costs incurred by CP of $57 million, the deferred tax recovery of $12 million described above, and an outside basis deferred tax expense of $8 million arising from the difference between the carrying amount of CP's investment in KCS for financial reporting and the underlying tax basis of this investment.

For the nine months ended September 30, 2021, the effective tax rate was 24.60%, excluding the discrete items of acquisition-related costs incurred by CP of $442 million, the merger termination payment received in connection with KCS's termination of the Agreement and Plan of Merger (the "Original Merger Agreement") of $845 million (U.S. $700 million), and an FX gain of $39 million on debt and lease liabilities.